When Stripe announced earlier this month that it was collaborating with the likes of Citigroup, Goldman Sachs and Barclays to embed a range of financial services within its Stripe Treasury offering, it was a big step forward for the Banking-as-a-Service (BaaS) landscape. Increasingly, consumer and corporate end users of various platforms are seeking a more seamless experience, and the owners of those platforms are finding a big opportunity to integrate a range of financial products and services, from payments to financing.
While it has accelerated this year, the evolution of BaaS hasn’t always been a smooth one. As the landscape evolves beyond integrated card issuing, solution providers are continuing to figure out the best path forward to widen the scope of their financial products. Though it’s with good intentions, Transcard CEO Greg Bloh says hiccups have emerged along the way.
“There have been some stumbles where the solutions, with disbursements in particular, became very problematic,” he recently told Karen Webster, noting that the friction was the result of the sudden introduction of a third party into a service like disbursements. It created an experience of confusion, and sometimes even distrust, from the end user’s vantage point.
As the market heads into 2021, however, there are opportunities to learn from those missteps and discover how platforms can capture the low-hanging fruit by wielding BaaS to empower, not complicate, the user experience.
A Phased Approach
The concept of Banking-as-a-Service is broad – and today, confusion remains about what exactly it means. At this point in its evolution, Bloh said it may not be appropriate to box BaaS into a single meaning.
“For right now, I think it makes sense to have multiple definitions, because it is a convergence from many different angles,” he explained. “There are many types of companies out there that are focused on different types of payments. I think we’ll continue to see confusion, but also a convergence into one common definition over the next year or so.”
The evolution of BaaS is unfolding in phases, the first being a testing-of-the-waters approach. But the market is quickly moving ahead, as early adopters learn from past mistakes to achieve what Bloh described as the third phase of achieving a solution that is fully integrated into existing user experiences and interfaces.
As non-bank entities consider the possible value in Banking-as-a-Service, Bloh also noted that different companies will have different goals for themselves and their end users. Smaller businesses are seeking straightforward plug-and-play solutions, for instance. Larger organizations, meanwhile, have far more complex needs and data integration requirements that go beyond a simple API plugin.
But across use cases, Bloh said two key themes are emerging.
The first is the need to achieve a seamless experience in how the end user interacts with an embedded counterparty. The second, he noted, involves the pursuit of an efficient underlying settlement process with that counterparty.
“Having those simple and direct interactions is super important to companies like ours, and others like Stripe, in order to achieve success in this marketplace,” Bloh said.
The Corporate Use Case
While initial Banking-as-a-Service adoption focused on the consumer end user, the company’s debut of Stripe Treasury showcases the model’s opportunity to enhance the experience of corporate end users with integrated payments and other financial offerings.
According to Bloh, any customer segment that still struggles with the pain of paper checks in B2B payments represents an opportunity for BaaS to address friction. With COVID-19 accelerating the digitization process for the enterprise, there is also significant value in wielding BaaS to not just eliminate checks, but to also facilitate the movement of data along with an electronic transaction like ACH – and to support a deep integration of that data within existing platforms.
Today, corporates often continue to rely on manual processes to aggregate and move transaction data from one platform to another. BaaS presents an opportunity to support the flow of information within a platform itself.
In corporate finance, often the most vital source of financial data is the ERP (enterprise resource planning) system. But historically, Bloh said, there has been a disconnect between ERPs and the act of payments.
“Payments is not necessarily something that’s built into the DNA of the ERP system,” he noted. “And coming from transaction systems, the ERP is a bit foreign.”
Once again, Bloh continued, this pain point is an example of how BaaS supports the convergence of two worlds. In corporate treasury, that means bridging the gap between payments and data, which will be increasingly important as real-time payment capabilities emerge with enhanced support for the movement of information along with money.
While Banking-as-a-Service is still an emerging and evolving model, Bloh sees significant opportunity for it to become a bridge that drives value for both platforms and their end users.
“From a business standpoint, there is a lot of value in combining the disbursement of funds, data and documents in a single transaction,” he said.
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